February 21, 2013 7:44 pm

Vote leaves Bumi dragons still at large

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As the culmination of one of the UK’s most acrimonious boardroom bust-ups, Thursday’s meeting of Bumi shareholders was, on the surface at least, surprisingly low key.

But the result of the shareholder vote was resoundingly clear: Nat Rothschild’s attempt to win control of the Indonesian miner he helped create had been rebuffed.

Defeat for Nat

Defeat for Nat
Results on proposed resolutions

Nineteen of his 22 resolutions were rejected. All of Bumi’s directors retained their seats, with the exception of Nalinkant Rathod and Jean-Marc Mizrahi. The only candidate on Mr Rothschild’s slate to win a place was Sir Richard Gozney, a former British ambassador.

The result concluded a power struggle that pitted Mr Rothschild, scion of the banking dynasty, against Bumi’s influential Indonesian shareholders and a board made up of some of the City’s most eminent grandees.

Bumi said it would now press on with its plan to separate from Indonesia’s Bakrie family, restructure its board, appoint a new independent chairman and strengthen the company’s management of Berau Coal Energy, its Indonesian subsidiary.

However, the outcome, while reassuring for Bumi’s directors, leaves a host of unanswered questions – and it is unclear how the company can slay its demons until they are addressed.

First, can Bumi recover the money allegedly lost from its Indonesian subsidiaries? For Mr Rothschild’s backers, that likelihood dwindled with Thursday’s vote. “What you need is a board that’s going to take an activist approach to recovering as many of the [lost] funds as possible,” said one shareholder. “This board doesn’t seem to want to do that.”

Then there is the fate of the various investigations that continue to swirl around Bumi – including one into the role of the advisers on the original deal creating the miner in 2010.

The Bumi board itself is looking into why due diligence failed to reveal “issues” that have become the subject of a probe by law firm Macfarlanes into alleged financial irregularities.

Separately, the UK Takeover Panel said in December that it was probing why it was not previously made aware of an existing relationship between the Bakries and Rosan Roeslani, a key Bumi shareholder, at the time of the 2010 transaction.

Beyond that, though, are two broader questions, which have huge implications for the London market as a whole: how could the Bumi debacle have been allowed to occur, and what can the UK listing authorities do to prevent it happening again?

Already, the Financial Services Authority and the UK Listing Authority have been looking at how to tighten the rules for foreign-owned companies and cash shells seeking to float in London. Bumi was created in 2010 through a $3bn deal in which stakes in Indonesian coal assets associated with the Bakries were reversed into Mr Rothschild’s London-listed cash shell, then called Vallar.

But Sir Julian Horn-Smith, Bumi’s senior independent director, warned against too radical a change. “We mustn’t give up London’s position in growing markets,” he said in an interview. “That would be a foolish and capricious response.”

Bumi’s recent history was, in fact, “a vindication of the London governance model”, he claimed – arguing that, without it, Bumi’s problems would never have been uncovered and addressed.

When Bumi was created, it was seen as an opportunity for westerners to invest in natural resource assets in emerging markets, while enjoying the safeguards of a UK listing.

But the company’s share price plunged following a sharp drop-off in the price of thermal coal, a succession of corporate governance scandals, and the spectacular falling-out between Mr Rothschild and the Bakries.

Last year, the board came up with a plan to split Bumi from the Bakries. Mr Rothschild presented his own, more radical separation plan, with proposals to replace 12 of Bumi’s 14 directors, and enforce more operational control of Berau.

Mr Rothschild built some support from institutional shareholders. But his prospects dimmed when Mr Roeslani, whose voting share in Bumi had been restricted by a Takeover Panel ruling last December, sold his 10 per cent stake. The new owners were free to vote the shares as they pleased – and they tipped the balance decisively away from Mr Rothschild.

Still, he claimed that the result amounted to a “huge protest vote” that was almost unprecedented in the UK.

Among certain directors, however, there was frustration at the time and money wasted on the emergency meeting.

Some smaller shareholders were also disappointed. “A vote for the current board is a vote to sweep everything under the carpet,” said one. “It’s a fine British establishment tradition.”

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